German FinMin does not plan new euro stability fund

By Christiaan Hetzner

BERLIN (BestGrowthStock) – A German position paper proposing a new euro-zone stability fund was drafted by lower-level officials in the German finance ministry and does not reflect the government’s position, the ministry said on Thursday.

The Sueddeutsche Zeitung newspaper reported Berlin would propose next month the creation of a “European Stability and Growth Investment Fund” (ESAGIF) in 2013 as a largely independent institution next to the European Central Bank to backstop euro-zone members.

“It was neither submitted to senior officials at the ministry, nor was it approved by these, and the ideas in the paper do not reflect in any way the position of the finance ministry or the federal government,” ministry spokesman Martin Kreienbaum said in a statement.

According to the newspaper, the fund would provide loans against collateral in the form of gold reserves, rights to revenue streams or equity in state-owned companies valued at 120 percent of the borrowed sum.

The daily said the ESAGIF would also be authorized to offer euro zone bond holders the opportunity to participate in a voluntary debt restructuring. For example, the fund would guarantee the liabilities should investors agree to rollover maturing debt at the same interest rates.

This would then permit the ECB to cease serving as the buyer of last resort for shaky euro-zone sovereign debt, the Sueddeutsche wrote.

CLOAK AND DAGGER

Condemnation for any such plans came swiftly from members of Chancellor Angela Merkel’s conservatives and their Free Democrat (FDP) coalition partners.

“Constantly starting new debates about measures that are not politically capable of finding a majority doesn’t serve to stabilize heavily indebted members of the euro zone,” said Michael Link, an FDP leader on European policy in parliament.

“Reflexive calls for (joint) euro-bonds or a type of European Monetary Fund through the backdoor only harm the stability of the currency and deserve a clear rejection,” he said in a statement.

The parliamentary leader of the Christian Social Union (CSU), Hans-Peter Friedrich, said his party would not accept any new fund operating independently of the planned “European Stability Mechanism” permanent fund for crisis management.

Economist Peter Bofinger, a member of the German ‘wiseman’ panel of experts that advises the government, said the government should focus on immediate problems.

“Amongst all this mid-term planning one tends to lose sight of the current crisis,” he told Reuters. “When new shocks come, poorly arranged bailout packages once again have to be arranged in a cloak-and-dagger operation.”

(Additional reporting by Rene Wagner, editing by Mike Peacock)

German FinMin does not plan new euro stability fund